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Julie Dickson, head of the Office of the Superintendent of Financial Institutions (OSFI).

CHRIS WATTIE/Reuters

More than 90 per cent of the pension plans of federally regulated companies in Canada had funding gaps at the end of 2011, Canada's federal financial regulator said Friday.

The Office of the Superintendent of Financial Institutions (OSFI) said 93 per cent of private sector defined benefit pension plans it oversees had deficits – up from 76 per cent in 2010 – thanks to modest returns on assets coupled with sharply higher pension liabilities due to falling interest rates.

The average pension plan was 81-per-cent funded at the end up 2011, down from 93 per cent a year earlier.

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That means that, on average, the plans' assets were equal to 81 per cent of estimated future liabilities for members' pensions – the lowest level of funding since OSFI began publishing results in 2004.

OSFI oversees pension plans of federally regulated private companies in sectors such as transportation, banking and telecommunications.

There are 1,354 federally regulated pension plans, which is about 7 per cent of all Canadian plans.

OSFI said it had 115 pension plans on its "watch list" at the end of 2011 due to their weak financial condition, up from 49 at the start of the year.

The regulator also said it intervened with some high-risk pension plans to enforce minimum funding rules and, in three cases, terminate plans whose "future was uncertain."

In a report earlier this week, pension consulting firm Aon Hewitt said about 97 per cent of pension plans in its sample had a funding deficit as of Sept. 30 this year.

While plans' funded status improved slightly in the third quarter, the average plan had simply returned to where it had been at the start of the year, Aon said.

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OSFI said the pension plans it oversees averaged a 4-per-cent return in 2011, down from 11 per cent in 2010 and 13 per cent in 2009. A typical plan had 49 per cent of its assets invested in equities, 48 per cent in bonds or other debt instruments and 3 per cent in other diversified assets.

Because of the large funding deficits facing plans, OSFI said it expects the cash contributions required by companies to increase "substantially" in 2012.

The regulator also warned plan sponsors to stress-test their plans throughout the year to ensure they are managing their risks properly.

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